The Mumbai Bench of the National Company Law Tribunal (NCLT) has clarified that pendency or prior initiation of SARFAESI proceedings does not, by itself, render a Section 94 application by a personal guarantor non-maintainable, nor can such application be rejected solely because its filing triggers the interim moratorium under Section 96. The Tribunal held that, absent material demonstrating mala fides or abuse of process, a petition under Section 94 cannot be rejected merely because it was filed shortly before a scheduled e-auction or because the secured creditor’s recovery proceedings may be delayed.
Essentially, the NCLT ruled that the right of a personal guarantor to invoke the insolvency resolution mechanism under the IBC is distinct from SARFAESI enforcement and cannot be denied merely on account of swift recovery action by the financial creditor. Accordingly, the Tribunal rejected the bank’s interlocutory application opposing admission. It initiated insolvency resolution process against the personal guarantor and declared a moratorium under Section 101 from the date of admission, to continue until expiry of 180 days or until an order on the repayment plan under Section 114, whichever is earlier.
The Division Bench comprising Sushil Mahadeorao Kochey (Judicial Member) and Prabhat Kumar (Technical Member) examined the sequence of SARFAESI action, the earlier defective petitions, the timing of the present filing, and the bank’s contention that the applicant was invoking Section 94 merely to obtain the benefit of interim moratorium. It noted that the filing of an incomplete petition one day prior to an earlier e-auction could indicate an intent to avoid auction, and that the present petition was also filed around the time when auction action was underway. However, the Tribunal also noted that the financial creditor had moved swiftly under the SARFAESI Act within a short period of default and that the personal guarantor’s resort to Section 94 could not be faulted merely because it was exercised when SARFAESI enforcement had progressed rapidly.
The Tribunal observed that the present application contained the particulars of the guarantee, details of the facilities, and copies of invocation notices, and that Bank of India had not disputed the existence of debt, default, or invocation of guarantee. The Tribunal held that SARFAESI proceedings are recovery proceedings, while Part III of the IBC provides a distinct insolvency resolution mechanism for individuals and personal guarantors, and that the interim moratorium under Section 96 is a statutory consequence of filing under Section 94.
Briefly, the petition was filed by Madhubala R. Jain under Section 94(1) of the Insolvency and Bankruptcy Code, 2016 as a personal guarantor to M/s. Kankria Agro Limited, seeking initiation of insolvency resolution process against herself. The corporate debtor had availed credit facilities from Bank of India, and the applicant had executed a personal guarantee in favour of the bank. The facilities were restructured/reviewed from time to time, the corporate debtor defaulted, the account was classified as NPA on June 28, 2025, and Bank of India issued a demand notice under Section 13(2) of the SARFAESI Act, followed by invocation of the personal guarantee and symbolic possession of the applicant’s property. The applicant disclosed liabilities of about Rs. 5.01 crore owed to Bank of India and assets of about Rs. 62.70 lakh, and filed the present application after an earlier defective Section 94 petition had been dismissed for non-filing of guarantee documents.
The Resolution Professional examined the material and submitted a report under Section 99 recommending admission of the application. The Resolution Professional recorded that the debt and default stood established, that the application was complete and within limitation, and that although the conduct of the applicant warranted scrutiny, the material on record was insufficient to conclude that the petition was a sham or fraudulent proceeding. Bank of India opposed the petition, contending that it was an abuse of Section 96 intended to stall SARFAESI recovery and e-auction proceedings, especially because earlier and present Section 94 petitions had been filed close to scheduled auction dates.
